Champion Charities held their "Night at the Theatre" event, which brought together top supporters from the sporting, business, and philanthropy worlds prior to attending "The Phantom of the Opera."
Harris Barton, Megan Barton

Photo: Aubrie Pick For Drew Altizer Aub, Special To The Chronicle

Champion Charities held their "Night at the Theatre" event, which...

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Amateur and former 49er great Harris Barton reacts to a missed birdie put by a member of his foursome on the sixth hole at Pebble Beach Golf Links during the second round of the AT&T Pebble Beach National Pro-Am golf tournament in Pebble Beach, Calif., Friday, Feb. 12, 2010.

Harris Barton, a former right tackle with the San Francisco 49ers, remembers the time Reggie White of the Philadelphia Eagles flattened him. It was Sept. 24, 1989, and for two downs, Barton had fended off White's "rip and club" move of throwing opponents off balance and knocking them to the turf.

On third down, White hurled Barton down and hit quarterback Joe Montana so hard he fumbled the ball. Montana went on to throw four touchdown passes in the fourth quarter to beat the Eagles, 38-28, on the way to the team's fourth Super Bowl victory.

There may be no such comeback for Barton in the investing game. HRJ Capital LLC, an investment firm he co-founded with another former 49er, Hall of Fame defensive back Ronnie Lott, collapsed in 2009 amid complaints by investors who say they were misled about the extent of its woes. The rise and fall of HRJ is a story of how former football champions traded on their star power only to be undone by a rookie mistake in the way they financed their investments.

"It worked for nine years, but mistakes were made," Barton said as he sipped a coffee at an Italian restaurant in Palo Alto. After HRJ's demise, he said, he was embarrassed every time he walked into a place like this in Silicon Valley. "I felt like everyone was looking at me and saying, 'There he is, the dumb athlete who couldn't manage his firm.' "

Barton set up the fund-of-funds firm in 1999 in Woodside. HRJ, which Montana joined as a partner from 2003 to 2005, invested in venture capital, hedge funds and private-equity funds.

Prestigious names

The ex-49ers easily won entree to the most-prestigious names in finance - from venture-capital firm Kleiner Perkins Caufield & Byers and hedge fund Tudor Investment Corp. to buyout company Blackstone Group LP. George Roberts, co-founder of KKR & Co., became a mentor and golf partner of Barton's. Ken Griffin, chief executive officer of Citadel LLC, invited Lott to speak to his Chicago hedge fund's greenhorn traders on what it takes to excel as a rookie.

"We used football to get in the door and talk to titans," Barton said.

The good times came to an end because of the way HRJ financed its investments. Most funds of funds raise money from investors and then commit the capital to private-equity managers. HRJ took a different approach: It made commitments to money managers before it raised cash from new clients.

When those managers called for capital, HRJ paid primarily with debt issued by Silicon Valley Bank. For five years, HRJ paid down its debt with money from new investors in its funds. A bank spokeswoman declined to comment.

When credit dried up even for the highest-quality borrowers in 2008, HRJ was sitting on more than $338 million in unfunded pledges and was unable to raise cash to cover its bets. HRJ spiraled toward insolvency until its assets were acquired in 2009 by Capital Dynamics AG, a Swiss private-equity fund-of-funds firm.

"The strategy was unorthodox and unwise," said Austin Long, co-founder of Alignment Capital Group LLC, an Austin, Texas, private-equity consulting firm. "If more funds had used this method, it would have brought the fund-of-funds industry to its knees."

Investors were outraged to learn that HRJ had quietly transferred its overcommitment from an affiliate controlled by Barton and Lott to the funds of funds themselves, says Deirdre Nectow at Cambridge Associates LLC, a Boston consulting firm that represented clients with more than $500 million invested in HRJ.

Agreements violated

The move made HRJ's limited partners responsible for the debt to the bank and the capital calls issued by buyout firms. Nectow says the shift violated the limited-partnership agreements that HRJ signed with its clients, which established that the funds would remain debt-free.

Jeffrey Bloom, the firm's general counsel and chief compliance officer, and Barton declined to comment on the transfers. Lott and Montana declined to comment for this article.

HRJ's financial maneuvers also led to litigation by three senior executives: Lane Auten, a former investment banker with Banco Santander SA, who headed HRJ's marketing and fundraising efforts from 2003 to 2008, and Duran Curis and Darren Wong, both of whom managed HRJ's funds of funds and brought in new clients.

In a lawsuit filed in Santa Clara County Superior Court, the three men accused Barton, Lott, Capital Dynamics and SVB of stiffing them on more than $17 million in compensation.

All of the defendants have denied the allegations in court filings.

Barton accepts responsibility for the fall of HRJ.

"At the end of the day, my name was on the door, so I'll take the hit," he said.

After spending a year with Capital Dynamics, he opened H. Barton Asset Management, which will invest alongside venture capitalists in tech startups.

"I want to be back in the game," he said. "I think I can make a go of it again."